3. 3. Credit Analysis [LO 20.2] Silicon Wafers Limited (SWL) is debating whether or not to extend...
Question:
3. 3.
Credit Analysis [LO 20.2] Silicon Wafers Limited (SWL) is debating whether or not to extend credit to a particular customer. SWL’s products, primarily used in the manufacture of semiconductors, currently sell for $975 per unit. The variable cost is $540 per unit. The order under consideration is for 15 units today; payment is promised in 30 days.
1. If there is a 20 per cent chance of default, should SWL fill the order? The required return is 2 per cent per month. This is a onetime sale, and the customer will not buy if credit is not extended.
2. What is the break-even probability in part (a)?
3. This part is a little harder. In general terms, how do you think your answer to part
(a) will be affected if the customer will purchase the merchandise for cash if the credit is refused? The cash price is $910 per unit.
Step by Step Answer:
Fundamentals Of Corporate Finance
ISBN: 9781743768051
8th Edition
Authors: Stephen A. Ross, Rowan Trayler, Charles Koh, Gerhard Hambusch, Kristoffer Glover, Randolph W. Westerfield, Bradford D. Jordan